Even in these modern times, talking to our family about tax possibly due on our estate when we are gone can be uncomfortable. However, considering the current tax rate of 40% in 2020 (beyond the available nil rate bands) few families inheriting estates with Inheritance Tax (IHT) due can afford not to plan.
With the current vast and hugely varied range of solutions available via qualified professionals, what some have deemed as the dreaded ‘death tax’ can be reduced or negated with careful planning.
Let us look at our client ‘Stanley’, aged 70.
- Stanley is a widower, his late wife Mary passed away 18 months ago leaving all assets exclusively to Stanley.
- They have two adult children.
- The family home is valued at £750,000 with no mortgage.
- Stanley holds investment of £350,000 and cash funds available of £250,000.
- Stanley also has an existing second death whole of life insurance policy with a value of £200,000 payable upon death, not currently in trust.
- Stanley receives ‘fixed’ pension income totalling £30,000, which meets his needs.
- Although Stanley does not rely on investment or cash funds, he wishes to retain a degree of control of capital.
Before receiving advice upon death, the family will be faced with:
- Inheritance Tax Bill due on estate of £220,000
- Net estate £1,330,000
Stanley received holistic advice from a specialist at WH Ireland including:
- Investing £200,000 of un-needed cash funds, utilising IHT exempt investments via an in-house specialist portfolio.
- £350,000 investments settled into a Loan trust, allowing Stanley to retain the option of accessing capital if necessary and future growth outside of the estate.
- £200,000 life insurance plan placed into appropriate discretionary trust allowing the proceeds to be paid directly to intended beneficiaries rather than the estate.
- Advice to utilise £3,000 annual gift allowance, including last year’s unused allowance carried forward (and in future coming years).
After planning received via WH Ireland Stanley then passes away just over 2 years later. Let us assume the IHT investment has grown by 6% net of fees.
The family are now faced with:
- Reduced Inheritance Tax bill due of £55,200
- Net estate of £1,494,800 (inclusive of £200,000 WOL lump sum)
- In addition to gifting in total of £12,000 using annual exemptions
- Plus additional growth of the loan trust is received free of inheritance tax.
The current Inheritance Tax legislation could change and IHT investments such as BPR/AIM need to be held for 2 years minimum, then retained until death. It is important to note that you can only carry forward one year’s unused annual exemption of £3,000. The above scenario also assumes £200,000 life insurance is received by the beneficiaries.
If you have any questions about any of our services please contact your investment manager or click here to find out more.
WANT TO KNOW MORE ABOUT THIS SERVICE?
Join our upcoming webinar on 11 NOVEMBER:
‘Keeping it in the family: How can I increase the wealth I pass to my loved ones?’
Join Phil Sidebottom from our Financial Planning team alongside Stephen Patch from law firm Shoosmiths and hear about the possible options available to mitigate Inheritance Tax.
Register at: whirelandplc.com/webinar